A sharp rise in revenues helped Capital Drilling Ltd (LON:CAPD) to return to profitability in the first half of the year.
The AIM-listed drilling solutions firm saw revenues for the six months ended 30 June jump 49% to US$62.3mln (H1 2016: US$41.7mln). That helped it swing to a post-tax profit of US$2.6mln (H1 2016: Loss of US$0.8mln).
WATCH: CEO Boyton praises 'really good rise in revenues'
Cash generation also strengthened to US$13.1mln (H1 2016: US$7.7mln), resulting in period-end net cash of US$3.3mln (31 Dec 2016: US$0.6mln).
As a result of the “strong” performance, Capital declared an interim dividend of 0.5 US cents per share for the period (H1 2016: 1.5 cents).
Trading conditions more supportive
The improved operational performance was largely driven by the increase in fleet utilisation – how many of its drilling rigs have been hired out – to 56% from 40% in the same period last year.
That was coupled with a healthy rise in the average revenue per operating rig (ARPOR) to US$191,000 (H1 2016: US$175,000).
As for the wider market conditions, Capital Drilling said it continues to see a recovery in commercial activity, underpinned by the continued strength of commodity prices.
That recovery was shown by the number of new contracts won in the opening six months of the year which aided fleet utilisation.
‘Solid performance’
“The improved revenue and profit for the group reflects a solid performance across the core contracts, underpinned by the improved market conditions which started firming in late Q2 2016.
“We are particularly encouraged by the award of two new long term production / mine site contracts, specifically grade control drilling at the Tasiast mine in Mauritania and underground drilling at the Syama mine in Mali.
“Recent legislative changes in Tanzania are concerning and clearly creating uncertainty. While we expect a reduction in delineation drilling at the Geita gold mine in H2 2017, there has been no impact to activity levels on the group's production drilling contracts at the North Mara and Geita gold mines.”
Situation in Tanzania ‘concerning’
The reason for the uncertainty in Tanzania is because of changes to the country’s mining legislation recently brought in by the authorities.
Capital has a contract in the East African country with Acacia Mining PLC (LON:ACA), the company which seems to have borne the brunt of the legislative changes.
The Tanzanian government has passed bills relating to the sovereignty, contractual terms and amended the Mining & Petroleum Act over the past few months.
This comes on top of a 1% clearing tax recently imposed and a dispute with Acacia over the amount of concentrate the miner is exporting.
“The uncertainty is having a material impact on exploration activity within the country and is likely to continue to impact investment decisions for the foreseeable future,” said Boyton.
Full-year results at ‘lower end of expectations’
Despite the commercial recovery, new contract awards and good operational progress, Capital Drilling is more “cautious” on full-year revenues whit it now expects to come in towards the lower end of its previous guidance of between US$120mln and US$130mln.
That’s because of the conclusion of drilling activities in Serbia four months earlier than expected, as well as a “slight” drop-off in drilling activities in Tanzania.
Capital told investors it was still on track to hit current market expectations in terms of full-year profitability.
Shares were down 3.8% to 38p on Thursday afternoon.
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